Crypto Donations Come With Accounting Challenges for Nonprofits

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By Amanda Iacone

Nonprofit organizations in the U.S. are slowly beginning to accept cryptocurrency donations like bitcoin, but they come with accounting challenges.

A lack of rules on how to account for cryptocurrencies leaves nonprofits to decide how to treat these donations.

They could be classified as a security, cash, or an intangible asset, said Daniel Figueredo, nonprofit and financial technology leader with accounting and consulting firm BPM LLP. He spoke during the Association of International Certified Professional Accountants nonprofit conference in Oxon Hill, Md., on June 19.

Each option brings with it a separate set of accounting ramifications—including how to determine the value of the gift, Figueredo said. But there are also tax and investing options to consider, too, he said.

New Donation Method

The Rocky Mountain Elk Foundation is among the few nonprofits that have begun to accept cryptocurrencies so far. The Missoula, Mt.-based organization wanted to be proactive and offer the option of crypto donations to would-be contributors, said Lori Parker, the foundation’s CFO.

“Why would you say no?” she said of the new donation method.

The foundation provides the link to its crypto account, known as a public key, on its website and now accepts three different forms of cryptocurrency. Only one crypto donation has been made so far, but the infrastructure is in place to receive more contributions in the future, Parker told Bloomberg Tax.

Parker said it was important to treat the crypto donations the same as she would any other contribution.

“We treat it like a stock donation,” she said. The currency is immediately converted into U.S. dollars, making it readily available to support the foundation’s mission of protecting elk and its habitat.

Most Others Leery

Because of the lack of regulation and the uncertain value of the cryptocurrencies, most nonprofits haven’t jumped into crypto yet, said Evan Paul, vice president of products for GuideStar USA, which tracks nonprofits in the U.S.

Cryptocurrency could reduce or eliminate transaction costs nonprofits pay to receive donations—making it an enticing option for nonprofits. The underlying technology, blockchain, could also offer more transparency for donors to see how their dollars are being used, Paul said.

Paul told Bloomberg Tax that large nonprofits like anti-hunger and anti-poverty group Heifer International, which works to end hunger and poverty, are also experimenting with both crypto donations and how to use blockchain technology to further their missions.

Two nonprofits located near major technology hubs—the Silicon Valley Community Foundation and the San Francisco Foundation—are also among the few early adopters to accept crypto donations, Paul said.

A Security, or Not?

Paul said organizations, like the elk foundation, are treating crypto donations as a security because of the fluctuations in their value.

However, Figueredo said that most cryptocurrencies aren’t really a security because they don’t offer an ownership interest in an entity.

The Securities and Exchange Commission has signaled it doesn’t consider Bitcoin to be a security. And a top SEC official said last week that the Ethereum network also doesn’t meet the definition of a security.

Figueredo also recommended that nonprofits know who their crypto donor is and to keep track of who controls a crypto asset to be able to prove ownership for auditors. Banking and tax laws and regulations also still apply, he said.

He said BPM has requested crypto guidance from the Financial Accounting Standards Board, which sets generally accepted accounting principles in the U.S.

To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bloombergtax.com

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